For too many small business owners business planning is something they just never get around to. If you’re in that group, you’re going to want to listen to this podcast and realize the business planning doesn’t have to be complicated or difficult to do.
Here are some of the things were going to talk about in today’s episode:
- Why business planning doesn’t have to be complicated.
- An easy way for you to ask tough questions about your business.
- How many years out you should go with your business plan.
- How a business plan will help you think about what’s working and not working in your company.
If you would like to tell me what you think about today’s podcast, click here and send me an email.
Narrator: Welcome to the Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In the Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: How are you today?
Today, we have a really interesting guest. I’m really looking forward to this podcast. We’re meeting with Tallat Mahmood today. Tallat started his careers as an aerospace engineer and then he moved into investment banking. For 12 years, he’s had an experience of advising global clients on all sorts of issues pertaining to funding, growth and how to get out of their business. He’s the founder and managing director of SkyPanther Capital which is a business coaching and advisory firm helping companies globally on developing business plans, raising funding and leaving their business. Like me, he is a wide author. He’s been featured in Forbes, Entrepreneur, Bplans – which is one of my favorite organizations, Tech Crunch and a bunch of others. He’s currently taking enrollments for his flagship course on How to Develop Your Business Plan to Raise Funding from Banks and Investors and you can find this at www.thesmartbusinessplanacademy.com. Let’s bring Tallat in and we’ll start our conversation.
Hey, Tallat. How are you today?
Tallat: Hi, Josh. Very well. How are you doing?
Josh: I’m doing great. Thanks so much for being with us. I’m really looking forward to this conversation because when I mention the word business plans – which is what we’re going to talk about today, to a private business owner, I often get this giant groan and “I don’t have the time” and “I’m not sure what the value is”.
Josh: First of all, let’s talk about the value. Why would a business owner or somebody who has 25 or 20 employees, who has been doing their business for 20 years or so. Why would this person want to have a business plan in the first place?
Tallat: That’s a really good question. It’s something that I hear a lot from a lot of the people that interact with as well. Definitely, I think, the perception on business plans has changed over the last maybe even 10 to 15 years from what it was before. And now, a lot of the sentiments that you hear are people coming and saying, “Well, actually, it’s going to take too long to make. Does it really serve that purpose?”
I think the real benefit of having a business plan, from a business owner’s perspective, it allows them to really put on paper their thoughts in terms of what the business is doing now and what they envisage the business to be doing in the future. Now, the business plan has some very, very specific goals. So, if you’re looking to raise funding, for example, a lot of banks and investors will be looking towards your business plan in order to help them make those decisions. So, those are some examples why very specifically you will need a business plan. If you look at a business lifecycle, I mean, there’s probably a number of times during the lifecycle of the business whereby they will need to go get and get external funding whether it’s bank funding or other equity investment. And so, therefore, getting into the habit of started on business plans early on and understanding really what makes your business tick from your perspective is, I think, imperative.
I think the other element of it which is important, in addition to helping you raise funding on the external side, is how it allows you to make decisions internally. I think this is where there’s a bit of a disjoint through people’s sentiments of what a business plan is and how they use it so a lot of business plans are considered to be irrelevant. My view of that, based on my experience over the last 12 years working with a range of clients is because the business plans that people put together are largely not put together in the right way. So, if you have a document which is weak to start off with, it’s inevitable that there’s not going to be a huge amount of value that you can get from it. But created in the right way, validated in the right way, a business plan has a real role to play in helping a team make decisions in their business, in addition to helping them raise funding externally.
Josh: Okay. So, if we want to do it the right way, what is the right way?
Tallat: I think, largely, it’s about developing a business plan which is evidence-based. With a lot of the audience that’s listening to us today, I think a lot of these guys have been operating businesses for a while. There’s a lot of data there that we can work off in order to project forwards to make a call on what the business is going to do or what we would like for the business to do. And so that’s, I think, the key thing that underpins a strong business plan is looking to see what your business has done and using that as the basis of projecting forwards which sounds as though it’s a relatively straightforward and logical thing to do but you’ll be surprised at the number of business plans that I’ve seen – that I’ve come across, both as an advisors and as an investor, and I’ve worked as investor for a period of time as well, which seemed to totally ignore the track record that the business has had. And when it comes to putting a business plan together, it’s almost as though the last three, five, or ten years never existed and the plan that they put forward is based on a totally different set of assumptions and figures. That’s where business plans fail. It’s when there’s a disjoint between what’s happened in the past and what you’re expecting the business to do in the future. That’s exactly why it becomes—because of that disjoint is why these business plans become unattractive to banks and investors, and largely irrelevant for business owners themselves.
Once you have that evidence in place, however, and you’re building it step by step – so if you’re talking about revenue growth or gross profit margin or operating profit margin, and your building those up in a way that you can fully justify, that then leads you to a position whereby actually you’re presenting a picture for your business over the next two, three, or four years which gives you a view of, for example, what the cash funding requirement for the business is going to be. So then, it allows you to plan much earlier for those types of events rather than if you’re not having a business plan in place, you’re very reactive to what’s happening in much more shorter periods of time.
Josh: So, what you’re saying is when you write a business plan, you – the business owner should ask yourself this question, “Why should I believe this plan I just put together?”
Tallat: Absolutely. Absolutely, 100%. I think the other thing of importance here is there are some people who largely outsource business planning – get other people to do them for them. I think, whereas parts of that are fine, largely it should have the ownership of the senior team to develop that plan. And they very much need to ask that question is, “Is this a plan that we fully believe in?”
I think that the caveat with any business plan is it’s a document that’s projecting into the future. And so, inevitably, it’s going to be wrong. But what we’re doing with that plan, as a means of helping make decisions within the business or secure funding from the outside, is we’re trying to create a picture which is our best estimate where we think our business is going to be in a few years’ time. In the exercise of doing that, if done properly, it adds a huge amount of credibility to the management team.
Josh: I find that that’s also true. Let me ask a question about how far out you should go with these things because that’s something I’m always confused by. When you’re doing a business plan, how many years out would you recommend the owner goes?
Tallat: I think, the issue with this question is really that, based on the type of document we’re talking about, it makes no sense to go out seven or ten years, for example. Typically, on average, the business plans that I’ve advised on or that I’ve seen as an investor, or that I’ve worked with businesses on are typically three years. I think three years is a decent period of time because a lot can happen in three years, is the first thing.
The second thing is, when you’re at the stage of putting that plan together, it’s very difficult to see much beyond the three years. So, when you’re talking about five years, a hell of a lot of stuff can happen within five years which is just too difficult for you to be able to see at the moment. And so, therefore, projecting out to sort of five, seven, or ten years largely becomes irrelevant. I think, projecting out at three years is relevant because (a) that’s the kind of timeframe that any bank and definitely an investor would be looking to make a decision off the back of. But also, from your own perspective, as a business owner, you will know the kinds of initiatives that you have in place. Those initiatives are not going to be six-month initiatives. They’re typically going to be 18-months, 24-months, 36‑months sight of initiatives. And so, you’ll have some kind of visibility as to the key kind of campaigns and launches that you’re going to be wanting to do over that period of time.
Josh: Now, I’m assuming, the rate of change in many businesses today is such that three years is even kind of a silly timeframe except if you go through and you constantly update your plan.
Josh: Is that something that you talk with your clients about?
Tallat: Absolutely. I think that’s why the initial point that I made around building the plan based on evidence is so important is because – you’re absolutely right, Josh. I mean, as you are going through—you build a plan today. In six months’ time, there’s things that will happen to your business which you never expected to happen. And in 12 months’ time, even moreso when you get—so when you get out of three years’ time, there’s so much that has happened that your business has transformed dramatically. And so, therefore, keeping a track of and updating your business plan at key periods of time is something that you ought to be doing.
Now, initially, when you kind of say that, a lot of people are probably thinking, “Well, that sounds like, again, too much work, very onerous. You know, can’t really be bothered sitting there, updating this plan every month or every three months or so.” That’s exactly—my point is, you don’t have to. If you’re building the plan in the right kind of way then the assumptions that you’ve built up is really a question of changing those assumptions based on what you’ve seen over the last six months or so, or over the last 12 months and justifying those in the document.
I think, just to reiterate again, is the business plan –I think the days of having business plans which are 70-, 80-, or 100-pages long are largely gone. There’s going to be a very, very limited audience that’s going to be wanting to read a business plan of that level of length. The business plans that we’re talking about right now could be much, much shorter than that. And it is very particular to every business. I’ve seen business plans which have been a handful of pages and I’ve seen business plans which have been slightly longer as well. So, as long as you get the financial assumptions updated, you’d have the data to be able to do that, the commentary around that, you will already know because that’s what you’ve seen in your business and that’s what’s led you to do this iteration. And so, having an iterative business plan is definitely something that people need to get into the habit of because it just keeps that document alive. It keeps it relevant. And more importantly, it allows you to make decisions on data that is current.
Josh: You know, it’s really interesting you said, I find the business plans, as a rule, help business owners get their arms around the concept and mistakes. What I mean by that is, a business plan is actually one giant mistake because whatever you write down is probably not going to be what happens three years down the road which means that you’re going to have to admit that what you did wasn’t right. And if you’re working with your business plan appropriately, you can ask, “What did I learn?”
Tallat: Exactly, yup.
Josh: Could you comment on that a little bit?
Tallat: Yeah. I think, that’s absolutely right. It goes back to the point of – it makes you think, as a business owner, more about what’s working and what’s not working in your business. There’s lots of forms that people do that through meetings et cetera. But with this document, it allows you to test the assumptions that you had six months ago or 12 months ago and really try to understand why that hasn’t turned out as you expected it to. But then, more importantly, it allows you to learn from those and put a revised plan together which—and it’s that iteration again which hopefully gets you into a place where, in 12 months’ time, you’re less away from reality than you would have been, sort of, 18 months ago – before you made that iteration. I think that learning loop that happens just generally on a day-to-day basis in business is something that’s captured through a business plan and just reinforces the key learnings which are very, very specific to your business and allows you to make decisions more knowledgably on the back of that information.
Josh: You mentioned something a little while ago which I think business owners have a really hard time with and doing a very poor job of which is internal capital allocations. When I’m talking about businesses – I’m not talking about managers, I’m talking about the owners of the businesses because most of these are pretty small enterprises. I love the idea of using a business plan for thinking about internal capital allocations. Could you expand on that a little bit?
Tallat: Yeah. I think, when you’re putting the plan together, I think one of the key things is when you’re talking about—and this comes to the financials, and it’s talking about how you’re projecting forwards, from a business owner’s perspective, it really gives you an opportunity to be able to break down, to understand what the projects of the business are. And so, therefore, where you expect cash, in particular, to be going.
One of the things that I talk about with a lot of my clients and through my course as well is the necessity to have key performance indicators. One of the most relevant key performance indicators for any business is the cash burn rate to understand well actually what level of cash are you burning today versus what it was in the last number of months. The cash burn rate or the relevance of that, varies to some extent depending on the stage that the business is in but largely it’s one of the most fundamental metrics that a business owner needs to keep track of in order to be able to determine what they’re doing but then also, what they can do. So, if you have been through a phase of growing relatively quickly, for example, you’ll be able to get a sense of that from obviously the activities that you’re conducting. But the impact of that, on the cash, is something that you’ll see straight away. And so, then that will also help you form those kinds of decisions in terms of – well, actually, we don’t have the resources yet to be able to grow to that sort of level, so you pull back a little bit. So, I think, having the right source of indicators, for a business owner to be able to manage cash within the business, for example, in addition to other metrics, is something that is another facet of business plans that is very much underused.
Josh: So, you really just sort of morph into what we call a dashboard which is the key performance indicators that business owners need to be watching on a regular basis. Can you talk a little bit about dashboards and how you put them together and how you use them?
Tallat: Yeah. For businesses which are perhaps more structured in their organizational approach and have, say, monthly board meetings or whatever, this is something which is going to be very familiar. For businesses which are slightly not of that sort of level in terms of organizing themselves, having a dashboard and reviewing it on a regular basis is an absolutely essential tool to be able to use in order to understand learnings and drive the business forward. What we mean by dashboard is really pulling out from the business the key things, or the key metrics, or the key areas that need further attention or that you need to be monitoring on a more detailed basis. Again, this is very specific per business because every business is going through different stages, through different events.
One of the things, for example, that you would have on there are the key performance indicators for your business. The key performance indicators can be a mix of financial and operational indicators. So, examples of KPIs that you could have are the level of revenue growth that you’re having, or the level of customer concentration that you’ve got currently. Or, for example, customer churn or average customer spend. These are examples of KPIs that businesses may want to use based on where they see as being either the risk or the opportunity in their business. And the reason we would pull out KPIs and review them on a pretty regular basis is exactly that – to understand where are the vulnerabilities in our company or where are they starting to begin and where do we think there are greater opportunities in our business that we can take advantage of now? That’s exactly why if you don’t have a dashboard, those opportunities and threats are exactly the things that you could potentially be missing out on to the detriment of your business.
Josh: You know, it’s really interesting, all the metrics you just mentioned for a dashboard – none of them are on a profit-loss statement or a balance sheet. And you’ve just hit on something which I have always thought as true which is a really good dashboard is likely not going to be found in your traditional financial reporting package. It’s other measurements you have in your company.
Tallat: Yeah, exactly. And that’s why it kind of gets lost if you don’t intentionally put something like this together and actually, when we were talking earlier on about the relevance of business plans. Well, actually, the dashboard is something that comes out of a business plan because what you’ve got in the business plan is you’ve got a lot of stuff in there which talks about, for example, the key types of customers that you’re operating with or the product mix that you’re putting forward, or what your channels of distribution, for example, may well be with your products or that sort of [inaudible 00:16:49] qualitative materials in the business plan in addition to the financials themselves.
And so, with that plan, sitting today, if you’re developing that plan now, you’ve got a good view of the kind of softer and harder elements within your business that will drive it forward. And that’s exactly what you can then use in order to develop this dashboard. So, the dashboard is not necessarily—it’s not another piece of work or another sort of line of work that needs to get done. It’s really an extrapolation of work that you’ve already largely done through the business plan but which you’re just presenting in a different way for you to be able to manage your business going forward.
Josh: That’s great. The really interesting thing about putting a business plan or a dashboard together, the dashboard is actually a subset of a business plan. The way I think about it is that one of the two things that owners need to do to create real value in their business is to make themselves operationally irrelevant. A dashboard allows owners to have the trust in their people that what’s supposed to happen in the business is happening. And it also allows them to know when they need to step back in before things go completely out of control.
Tallat: Yes, exactly.
Josh: Which can also happen.
Tallat: Absolutely. Absolutely. I’m sure we’ve both seen that many a time. I think that is the importance of a dashboard. I guess, what I’m trying to do with a lot of my clients and through some of the other material I’m putting out there is [inaudible 00:18:07] people is, it is necessary to change the mindset around business plans.
These aren’t documents which should take months and months and months to do. These aren’t documents that once you produce, you put it on the shelf. These aren’t documents that have zero value. If you think about them in the right way, they are very powerful and the opportunities they can present to you.
A lot of the other material that you can get from the business plan, if developed correctly – for example, the dashboard, is something which is so powerful because with the dashboard, what you have is you have a live recording tool effectively because it’s a snapshot and it’s presented in more presentation style. It’s something which can be shared with wider than just the senior team for people to really be able to see, “Well, these are the key areas that we’re focusing on. This is what we’re targeting. So, on a month-by-month basis, you can track those and see what level of improvements you’ve made. And if there have not been any improvements, then what that dashboard does is it helps you facilitate discussions with your wider team – the guys who are on the ground to really understand “What have been the things which have been holding us back from being able to achieve those objectives?”
Josh: Tallat, unfortunately, we are out of time.
Josh: So, before we leave – yeah, I know it goes by really quickly.
Josh: But before we leave, I want our listeners to know how to contact you. And if they want to work on this a little bit further, what steps they should be taking next to work with you. Can you give us your contact information and all that other good stuff?
As you mentioned, Josh, my flagship course which is www.thesmartbusinessplanacademy.com is currently taking enrollments. In that course, I talk in a lot more detail – on a very practical and action-based method as to how teams can really put together a business plan and dashboard and lots of other stuff, especially if they’re looking to raise bank or a private equity funding. And so, that course really talks on step-by-step – based on my experience over the last 10 or 12 years in terms of how they can build their own plan in that sort of way. So, that’s www.thesmartbusinessplanacademy.com. If they sign up there, they get a free cheat sheet which talks about steps to help them raise funding through a business plan.
Josh: Tallat, by the way, is spelled T-A-L-L-A-T for those who are interested.
This has been a great conversation. I wish we could go on for another hour or so because I’m sure we’d have a lot of fun but we try to keep these to the length of your commute. So, here we are.
Thanks so much. I really appreciate your time today, Tallat.
Tallat: No problem. Thanks a lot, Josh.
Narrator: You’ve been listening to the Sustainable Business Podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802‑846‑1264 ext 2 or visit us on our website at www.askjoshpatrick.com, or you can send Josh an e-mail at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.